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Forex Introduction

Introduction to Forex

Although the foreign exchange market is the largest traded market in the world, its reach to the retail sector pales in comparison to the Equity and Fixed Income markets. This is in large part due to a general lack of awareness of FX in the investor community, along with a lack of understanding of how and why currencies move. Adding to the mystique of this market is the lack of a physical central exchange akin to the NYSE or the CME. It is this very lack of structure that enables the FX markets to operate on a 24-hour basis, beginning the trading day in New Zealand and continuing through the time zones.

Traditionally, access to the FX market was limited to the bank community that traded large blocks of currencies for commercial, hedging, or speculative purposes. The creation of firms like Bacera has opened the door of Forex trading to such institutions as funds and money managers, as well as to the individual retail trader. This sector of the market has grown exponentially over the past several years.

What is Forex?

For active traders and investors, foreign exchange should be no different than other investment products such as equities, commodities or fixed-income. Because of globalization in the economic world and consolidation of whole economic regions (i.e., the European Union), including currencies in a portfolio helps to diversify assets and can reduce risk.

Just like other investment alternatives, foreign exchange offers traders/investors a market where they can buy or sell an investment product. In this case it is a specific Currency Pair. The currency pair may be the Euro versus the US Dollar, the US Dollar versus the Japanese Yen, the British Pound versus the US Dollar, the Euro versus British Pound, or a number of other currency combinations.

The different currency combinations represent nothing more than the value of one currency versus the value of another. That relationship is represented by a single price. In foreign exchange, the price of a currency pair is the market’s expectations (at that time) of the value of that currency measured against another currency given the current and expected economic and political situation in the two economies. In equity terms, it is the price of the stock.

If, for example, an economy’s inflation/interest rates are low and stable, if its output is growing strongly, or if its politics are stable and expectations are for more of the same, then one can expect (in general) for that country's currency to remain strong versus a less fundamentally favorable currency.

Foreign Currency Symbols

Currencies, like equities, have their own symbols that distinguish one from another. Since currencies are quoted in terms of the value of one against the value of another, a currency pair includes the "name" for both currencies, separated by a "/". The "name" is a three letter acronym. The first two letters are in most cases reserved for identification of the country. The last letter is the first letter of the unit of currency for that country.

For Example:

Flag

Symbol

Currency

USD

United States Dollar

GBP

Great Britain Pound

JPY

Japanese Yen

CAD

Canadian Dollar

NZD

New Zealand Dollar

AUD

Australian Dollar

EUR

Euro

Since the European Euro has no specific country attached to it, it goes simply by the acronym EUR. By combining one currency, EUR, with another USD, you create a currency pair EUR/USD.

The Value of Currencies

The base currency is ALWAYS equal to one of the currency's monetary unit of exchange (i.e., 1 Euro, 1 Pound, and 1 Dollar). When an investor buys 100,000 EUR/USD, he is said to be buying (or receiving) the EURO or the Base Currency and selling (or paying for) the USD or Counter Currency. The amount of the Base Currency he is buying is equal to 100,000 Euros. Note that this is true no matter the current exchange rate at the time. The base currency amount remains constant.

Currencies trade in fractions of a full unit. The smallest fraction is called a "pip". Currencies trade in pips because exchanges of currencies for speculative reasons are generally for large amounts. This is because of the leverage that is available when trading Foreign Exchange.

Bacera provides a Maximum Trading Leverage Ratio of 400:1 for standard accounts. At that ratio, a 100,000 EUR position would require $285 of Margin at an exchange rate of 1.14000. This is calculated by taking the US$ equivalent of 100,000 EUR or US$114,000 and dividing by the 400:1 leverage ratio.

Value in US$ = 1.14 x Par Amount of Base Currency = $114,000
To determine the value of a pip for the deal above the following calculation would be made:
Value in US$ = 1.14 x Par Amount of Base Currency = $114,000

Forex Transaction Fundamentals

Buying and Selling Foreign Exchange

In reality, you are doing both actions - buying and selling. A transaction of Buying the EUR/USD at 1.1400 is actually buying the Euro and selling the Dollars at 1.14000 cents. If the Euro increases in value in relation to the dollar, the price would increase and the investor will make money.

If for whatever reason, a trader could not execute an order using Bacera, a verbal order to a broker could be the following:
"I buy 100,000 Euros and sell the dollar at the Market" OR
"I buy 500,000 EUR/USD on a 1.15000 stop" OR
"I buy 100,000 Euros vs. the Dollar at the market"

What is required on all verbal orders is the amount, the Currency Pair, the rate and/or the type of order. Simply saying "I buy the Dollar at the Market" is not good enough as it does not say what currency the trader wants to sell.

The Bid/Ask Price

Like equities, foreign exchange has a Bid price and an Ask price. The bid is where the market maker will buy. The ask is where the market maker will sell. For investors, the reverse is true. The bid price is where an investor can sell, while the ask is where an investor can buy.

The spread between the bid and the ask is called the Bid/Ask Spread or Dealing Spread. The bid/ask spread is the premium that market makers charge to provide constant liquidity to a retail client base. For example, the bid and ask might be 1.14501/1.14506. The spread is 5 pips.

Paralleling foreign exchange trading to equities, a market maker, like Bacera, is the equivalent of a specialist on the floor of the exchange.

A specialist is always willing and able to make a market (i.e. provide liquidity) to the market/investor. For this service, he will have a bid where he buys the stock and an offer or ask, where he will sell the stock. The bid/ask spread the specialist charges will fluctuate with the general liquidity of the underlying stock.

Dealing Spreads for the major currencies pairs on Bacera are 2-3 pips wide. Some less liquid currencies will be a bit wider. This reflects the relative liquidity/risk in the professional market for that particular currency pair. The dealing spreads that we quote reflect a normal market making spread given the risks we take and the costs we incur for servicing our clients' business.

Disclaimer: Bacera Market Opinions

Any opinions, news, research, analyses, prices or other information contained on this website is
provided as general market commentary and does not constitute investment advice.
Bacera will not accept liability for any loss or damage including, without limitation, to any loss of profit
which may arise directly or indirectly from use of or reliance on such information.

Risk Warning

Trading Contracts for Difference carries significant risk, and may not be suitable for all investors.
Before deciding to trade the Contracts for Difference offered by Bacera, you should carefully consider
your financial objectives, situation, needs, and level of experience. We recommend that you seek independent
professional financial advice and ensure you fully understand the risks involved before trading.
Bacera is the trading name of Bacera Co Pty Ltd (ACN 130 877 137), AFSL 328794. For more details,
please click to view the Risk Disclosure Addendum.

Bacera is the trading name of Bacera Co Pty Ltd, Australian Company Number (ACN) 130 877 137, Australian Financial
Services Licence (AFSL) No.328794 . Bacera Co Pty Ltd makes no recommendations as to the merits of any financial product
referred to in this website, emails, or related material(s). Information contained on this website does not take into
consideration prospective client's trading objectives, financial situation, or investment needs. Bacera recommends that
prospective clients read our
Product Disclosure Statement and the
Financial Services Guide,
as well as seek independent professional advice, before making any decision concerning Bacera's products.
Please note that if Bacera’s financial services are being provided from a location outside of Australia, Bacera’s AFSL and Australian regulation only applies to the financial services provided to Australian residents only.
Due to regulatory restrictions Bacera Co Pty Ltd does not accept applications from US citizens.

* Information contained within the following document is provided as general market information, and does not constitute
investment advice. Bacera has taken reasonable measures to ensure the accuracy of this information, however, we do not guarantee its accuracy, and will not accept liability for any loss or damage which may arise directly or indirectly from this content.

Trading Arrangements for US Election Day

Due to the United States presidential election which held on November 8, 2016, Bacera Co Pty Ltd would like to announce that special trading arrangement will be take place after market closure of November 7, 2016.

Margin Requirements:

Leverage 1:200 will be adjusted to 1:100

Leverage 1:400 will be adjusted to 1:200

*Above adjustment will be resumed upon the stabilization of the market

All Limit Order/Stop Gain/Stop Loss Levels:

-Forex: Minimum price must be the prevailing market price from the price of at least 200 or more.

-Gold: Minimum price must be the prevailing market price from the price of at least 400 or more.

-Silver & US Crude Oil: Minimum price must be the prevailing market price from the price of at least 40 or more.

-Indices: Minimum price must be the prevailing market price from the price of at least from 40-800 or more.

-Stocks: Minimum price must be the prevailing market price from the price of at least from 20-80 or more.

*Above adjustment will be resumed upon the stabilization of the market

Trading Spreads:

Under volatility market circumstances, the spreads may widen until market stabilized.

We would like to notify all customers that under abnormal market conditions, must be fully understands the risks involved in trading financial instruments. It is Client’s responsibility to monitor and manage their open positions actively, and also paying attention to the Maintenance Margin Requirements. It is the responsibility to the Client for the awareness of any changes to the Margin Requirement or trading condition right now.

*In case of extreme volatility and illiquidity market conditions, some of the instruments might change to Close Only.

If you have specific questions about the above announcement, please feel free to contact us by our 24 hours customer support live chat or by email at info@bacera.com.au.

Trading Schedule during U.S Winter Time

To help you plan your trading more effectively, we would like to inform you that the trading hours for Forex CFDs, Precious Metals CFDs, USOIL CFDs, Indices CFDs and Stock CFDs will be rescheduled due to U.S. Winter Time which will start from 06 November 2016 (Sunday).